Best cities for buy-to-hold real estate in the US?

21 Replies

Hi everybody! 

This is my first discussion on Biggerpockets, quite an exciting moment! :-)

A little background...

I have been involved in buy-to-let real estate for the past few years in South Africa (Cape Town, Johannesburg and Port Elizabeth). I knew the markets well, partnered with someone and started growing a portfolio.

But with the recent concerns surrounding the state expropriating property without compensation (https://www.bbc.com/news/world-africa-45026931), it raises a few concerns over property rights in the country. Yep, thats right. They want to amend the constitution to expropriate property without payment. Without getting into the politics, it is an unsettling development for an investor if property rights weakened.

So I set my sights on USA! 

I knew little about the US property market (last year was my first visit to the US), so started reading everything I could get my hands on, listening to podcasts, and researching online. As you can imagine, it is hard to determine where to even start with such a vast amount of options! 

I have been trying to narrow down, which cities are the best options, looking at demographic trends, unemployment rates, GDP growth, household incomes etc. and narrowed it down to a list below. You may notice that some cities are excluded (e.g. New York, San Francisco, San Diego) mainly because they are a bit out of my price range.

I was hoping that perhaps some fellow investors on BiggerPockets would be able to share some thoughts on these cities:

  • Dallas
  • Austin
  • Kansas City
  • Salt Lake City
  • Denver
  • Cincinnati
  • Charlotte
  • Nashville
  • Boston
  • Tampa
  • Portland
  • Seattle

Which ones are the best options, and why... Ofcourse, please feel free to throw any other names in there.

Whats next?

Once I manage to identify the ideal city to invest in, I hope to connect with the local real estate folks (agents, property managers, lawyers etc.) and progress to the next step in the investment process. 

Getting started in the US real estate market from abroad can be pretty tough, but I know it can be done. This is a step in the right direction.

Look forward to engaging with you all! :-)

Gareth

Hey @Gareth Meaker

The land reform discussion taking place in South Africa is certainly a complicated and contentious one.  While we have our own challenges in the US, luckily this issue isn't one of them.  I love Cape Town and visit often as well as having very close South African friends so I have some context for it being a challenging time in the country.

If you are looking into the crystal ball many years down the road I would suggest your focus should be on the southeast of the US away from the coast.  Taking into account climate change, the regulatory environment and future growth (population and real estate valuations), cities like Charlotte, Nashville, Chattanooga, Atlanta, Birmingham, etc etc should win handily against costal cities or the rust belt.

Ultimately the best city to invest is the city you can invest in first and the most sustainably.  Real estate when bought right, over the long term, is one of the best investments.  Focus on getting started rather than hyper-optimizing for the best possible scenario in the short term.  Invest based on fundamentals in areas that will grow or be stable and with conservative underwriting and you'll be flying back to South Africa in first class to visit friends and family in no time. 

@Gareth Meaker Welcome.

Your list is too comprehensive right now. All of those cities can be great markets. Some of them are pretty pricey, which is fine if you have the capital. The appreciation in some of those can be amazing. 

I think it may be easier to help you if you told us your goals - are you looking for single family homes or multis? Cashflow or appreciation? Or both? What's your price range? 

Hi @Jason Carter ! Thanks for the comment. I know it is a bit of a long list. I initially started with a list of 50 cities and narrowed it down systematically :-) 

Do any of those stand out to you in particular?

Goal is really on cash flow, looking to hold long term. Price range is a bit uncertain, but I thought it made sense to start small. I am sure I will make a few mistakes initially, so a small one is a good way to pay "school fees"...

My experience in South Africa is mainly with apartments and multis, so I suppose this would be best suited.

Hey @Josh Stack

Happy to hear you have been to Cape Town, truly one of the most gorgeous cities int he world! 

Thanks for the advice. It makes sense to focus on areas with strong fundamentals and, in particular, population and economic growth rates.

You mentioned a few cities I hadnt explored before, so will be sure to check them out too! 

I sure look forward to those flights :-)

Thanks again!

@Gareth Meaker you are in a terrible situation over there, hopefully Australia will offer you a worst case recourse. No one is going to be able to answer your question effectively. You will need to come to the states, on the longest flight ever, and explore yourself. I hope you can get a visa. If you come to Portland let me know and I’ll show you around investor to investor, no agents

Hey @Steve B. Indeed it is a challenging situation. 

I know, it will be best to head over to the states for sure! Thanks for the invite, I will be sure to let you know if I am in Portland!

Since you are based there, what is your overall impression of the Portland market currently? What excites and concerns you?

@Gareth Meaker  I like Austin but that's just b/c I'm familiar with it. Harder to find cashflow there now. But it's supposed to double in size over the next 20 years or so I was told. 

Kansas City I know a lot of people like for cashflow. It's probably the cheapest on that list or maybe Cincinnati. 

Here's the thing - you can find cashflow in any of those cities, some will be easier than others, but it all depends on your team, You've got to have a great manager, contractors and agent. If you can't find them in one city, move on to the next one. 

@Jason Carter That great advice! Thats so much for the insights! Much appreciated. Couldn't agree more on the comment about the team.  That is such a crucial component.

I will be sure to look deeper into Kansas City, Cincinnati and Austin. 

@Gareth Meaker . I would say Portland is flat right now. We are a similar demographic to Austin which is trending slIghtly down this year. Our absolute upside is still better than Los angers or Seattle given price to wage ratios but I don’t think our next 5 years appreciation will be comprable to the last 5 years, at least in the Portland metro. Select Tertiary markets look better . If your location agnostic I agree with the poster who recommended the Southeast but dont get into a market that has already popped like charlotte, Nashville , or Charleston . Rather look for the next place the well educated, elitist liberals are moving to. They do a good job driving housing prices up and then taxing, constricting affordable new drvelooment, and regulating the area enough to maintain the higher prices levels . Grant cordone talks about this on his BP podcast regarding San Diego, and unlike about 90% of what that guy usually says I agree with him on that point

@Gareth Meaker If I could speak on Nashville, I would caution you to not write off the entire area as being "too hot to work". There are absolutely areas where margins are tightening, such as super desirable spots in East Nashville. But that is not to say Nashville has been tapped out. The metro-sprawl has actually created more opportunities in the region. Areas like Madison, Smyrna, and Hendersonville have become killer rental opportunities. In the same way, areas like North Nashville and Old Hickory are seeing massive profits on the flipping side. In my opinion, Nashville should still be on every investor's list.

Hi @Mark Newton . thanks so much for this input man! I really appreciate it. I have been reading quite a lot of industry reports, and they do overlap a lot with what you are saying. There is strong wage growth, low unemployment and the economy appears to be performing well. 

Have you found that the growth (particularly medical and arts), including population growth, has placed strain on the cities infrastructure, or not necessarily?

@Gareth Meaker   Hi Gareth and welcome.  I agree with what others have said about the southeast and stay away from the coasts.

I also agree with what @Steve B. said about looking for the next thing to pop rather than what has already popped. 

One thing I also agree with Grant Cardone on is that you want to be in a market that has some appeal and exposure to the rich, especially the international ultra wealthy.  That's why I like Las Vegas which is the market I am most familiar with.  That's not necessarily where the rich and ultra wealthy live, but they certainly go there to play and they spend a lot of money there.  And since just about every top luxury brand in the world is represented there now I think it's going to continue to be one of the playgrounds of the rich for a long time to come.  In fact Hilton recently announced they are buying the Mandarin Oriental and rebranding it a Waldorf Astoria so that's very telling.  That demand along with conventions, sports teams, eSports, population growth and a lot of other things going on there right now is making me very optimistic about Vegas' future prospects.

Hey @John M. Thanks for the input. It sure seems that the consensus is to avoid the coasts and look inland. I had looked at Vegas initially, so may be worth having another look at it. 

Indeed it is true that the population has been growing consistently for some time now and so has the average household income. 

I just feared that perhaps the property market had already run quite hard and finding a good buy to hold investment may be challenging. What are your thoughts on this?

@Gareth Meaker That's great if you had thought about Vegas previously all the better since you have some familiarity with the market then.

You are correct the market has run up so it is harder finding deals.  However that is becoming a problem in many markets around the US not just Vegas.  I think the reality is that here in the US the easy money was already made by the people that were buying real estate at the bottom of the cycle in 2010 to 2012.   At this point in the cycle prices are high and the competition by investors is fierce for the few deals that are out there.

I don't know how Vegas compares to the other markets you are considering, but if all you want is cash flow for a buy and hold investment, anything can cash flow if you put enough down or pay all cash.  If it's the return you are more concerned with, you're probably looking at average 6 or 7 caps which may also be the case for many markets across the US, unless you want the higher risk that comes with 10+ caps like venturing into rough D class neighborhoods or go into markets that are much smaller, unknown, or worse  in population decline.  

Since I prefer A to B-/C+ class neighborhoods and properties, I am willing to accept a lower return up front if I think there's room for rent growth in the future.  Kind of like a stock many people overpay up front to buy for forward earnings not today's earnings.  That's why I don't spend too much time looking at cap rates, I prefer to look at future cash on cash return, which as rents rise over time, so will the return.  But that's where the homework comes in, doing enough research in a specific market to have enough confidence that the future will provide job and income growth, population growth, and resulting rent growth.  And also making sure that the market isn't currently so high priced that a lot of rent growth is already priced in which I think is the case with many Coastal markets.  For example in San Francisco where an average 2 bedroom apartment can rent for $5,000, can it expect to see the rent go to $7,000 or $10,000 for that same apartment?  Probably at some point in the future but you may be waiting a long time for incomes to catch up to support those prices. 

So I think this all depends on your goals, timeline, the type of market, etc.   Each of the cities you mentioned has it's own personality, demographics, etc so it might come down to personal preference.  I guess I ask the question would I personally live in that city?  If I wouldn't want to live there myself then I may not want to invest there either, and I can definitely say that about some of those cities in your list.  That's my philosophy anyways :)

@Gareth Meaker

Hey mate! I'm from Jo'burg. Moved to the US 10 years ago.

I know what's happening down there. So sad!

Let me know how I can help. I live in the Nashville area and I'm quite active over here. 

@Josh Stack  

@John M.

Sorry to hijack with a question. I am spending as much time as i can reading these posts and learning right now and I have a question.  You mentioned a couple of times to stay away from the southeast coast in terms of buy and hold. Could you expand on the thought process? Is just a factor of recent price appreciation - i.e. a bubble so to speak, or are there other factors I should be thinking about. One of the strategies I am researching right now is short term rentals and am looking to identify a sustainable market that makes sense for this type of investment. Thanks

Hey @Vincent M. just to clarify I think the Southeast is fine.  I just don't like the West Coast or East Coast because they are very expensive and seeming a little toppy in my opinion.  

I don't know too much about short term rentals other than based on the research I did I decided I prefer long term rentals.  But I do like other people doing short term rentals because it's less competition for both of us.   Be careful though because some cities and/or counties don't allow short term rentals or they might but you have to obtain a permit or business license (can be expensive) and people that are doing airbnb in those places and disregard the law or ordinances can be fined.

Hey @Luka Milicevic Thanks for the message. Yes crazy times in SA man. Nice to touch base with a fellow Saffa! :-)

Tell me more about what you are doing in Nashville, mainly buy to hold? 

What is your view on the market there at the moment?

@Vincent M. thanks for the message. From the research I have been doing recently, the concern is that the prices have run quite hard for an extended period of time. Finding deals where the cash flows make sense are quite hard to come by. This seems to be the case to a lesser extent when you go inland.

We have been in a growing property market for about 9 years, and my understanding is that the coastal cities rebounded initially a bit faster and that there is a bit more meat left on the bone in other areas.

I agree with @John M. that the South East is okay and that you can find some value there. The economic indicators still look good and the prices relative to income have not increased to nearly the same levels as some coastal cities.